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Brazilian Steel Firm Draws Put Action

Companhia Siderurgica Nacional got a boost from an investor who may not be finished with his moderately bullish move.

CHICAGO (TheStreet) -- Put volume in Brazilian steel and iron name Companhia Siderurgica Nacional (SID) - Get Report received a boost from an investor who might not be finished with a moderately bullish position.

SID closed up seven cents to $14 Wednesday without any news from the company. The stock reached a 52-week high of $21 in April, and options volume on the tape so far today suggests an investor expects the stock to be trading closer to its highs at January 2012 options expiration.

At 10:10 a.m. EST a block of 11,000 January 2011 17.5 puts changed hands for $4.60 per contract (closer to the ask price at the time of the trade) and the same number of January 2012 15 puts simultaneously crossed for $4 per contract (the bid price when the trade hit the tape).

The January 2011 17.5-strike puts are home to current open interest of 14,000 contracts and current open interest in the January 2012 15 puts is roughly 3,000 contracts, indicating the investor most likely bought to close the higher-strike puts and sold to open the lower-strike puts.

This investor rolled the puts out and down on a bet that SID shares could drop more than originally anticipated, and was likely willing to risk a net debit of 60 cents per roll. The open short put position will make money if SID shares are trading higher than $11 at January 2012 options expiration. If the stock is below $15 at January 2012 expiration, the investor will lose money in direct relation to the drop in the stock.

This investor sold an implied volatility of roughly 48 in the January 2012 15 puts, and bought an implied volatility of roughly 53 in the January 17.5 puts. This compares to the stock's 30-day historical volatility of approximately 64%.

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Judging from the open short put position the investor traded this morning, it looks like the investor still expects SID to find a floor at some point, but was giving up on the original January 17.50 puts. This trade also benefits if the spread between the implied volatilities in the two options widens.

Karla Yeh reported similar put roll action in SID's cohort


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this morning.

-- Written by Jud Pyle in Chicago

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."